The SECURE Act and What It Means to Your Retirement Plan

Are you putting away enough in your nest egg to secure your retirement?

A new law may just be a game-changer with far-reaching implications to IRAs, 401(k)s, RMDs and more.  The SECURE (Setting Every Community Up for Retirement Enhancement) Act of 2019, which passed the House in July, was approved by the Senate on Dec. 19, 2019, signed into law by President Trump on Dec. 20, and took effect on January 1, 2020.

The new law, while being far from being a cure-all for retirement challenges, is a step in the right direction.  The US Retirement System has led most workers to supplement Social Security with personal savings.  Studies show that only more than half of the workforce participate in a retirement plan.  Those who do so fall behind in investing a portion of their paycheck.

Offering 401(k)s can be expensive and difficult to administer for most employers.  The SECURE Act now encourages them to offer retirement plans and help workers of all ages to save for their future.

Here are some provisions of the SECURE Act and what they could mean to you:

  • Remove the 701/2-year-old age limit at which individuals can contribute to a traditional IRA; the new law allows anyone who is working and has earned income to contribute to a traditional IRA regardless of age (for taxable year 2020 and beyond);
  • Encourage employers to establish retirement plans for their workers by increasing the cap under which small businesses can automatically enroll workers in “safe harbor” 401(k)s from 10% to 15% of their wages;
  • Incentivize employers to create a 401(k) or Simple IRA plan for workers with automatic enrollment by providing them a maximum tax credit of $500 per year;
  • Allow part-time employees with annual 1,000 hours of service of three consecutive years with 500 hours of service to sign up for retirement plans;
  • Include annuities as an option in workplace plans, reducing the liability of plan sponsors if the insurer cannot meet its financial obligations;
  • Push back the RMD age at which retirement plan participants need to take their Required Minimum Distributions from 701/2 to 72 years applicable to those who are not 701/2 years old by the end of 2019;
  • Repay student loans up to $10,000 annually with the use of tax-advantaged 529 accounts; the law expands the definition of a tax-free or qualified distribution from a 529 savings plan to include repayment of up to $10,000 in qualified student loans and expenses for certain apprenticeship programs;
  • Remove employers’ fear of legal liability (if annuity provider fails to provide) by including more annuities in 401(k) plans and not require employers to choose the lowest-cost plan;
  • Removal of the stretch IRA allowing non-spouse heirs of retirement accounts to stretch out disbursements over their lifetimes and requiring a full payout of the inherited IRA within ten years of the death of the original account holder (applicable to heirs of account holders who die in 2020).

If you want to know more about how to re-evaluate your retirement or estate planning strategies, consult with us on how these policy changes will impact defined contribution (DC) plans, defined benefit (DB) plans, individual retirement accounts (IRAs) and 529 plans.


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